Warren Buffett’s Charity Philosophy at Berkshire Hathaway

Not that long ago, I was watching the Missouri Tigers play against another team with the exact same mascot, the Auburn Tigers. Unfortunately, my Missouri team lost, but I’d like to talk about something curious that happened during the halftime show: two college students competed against each other for a free college tuition. It was a competition involving throwing footballs through a giant cube-shaped Dr. Pepper box, and the winner of the contest received a free college tuition (or maybe it was just one year of free tuition, I don’t remember) that was paid for Dr. Pepper.

Now, as a Dr. Pepper shareholder, this did not bother me. In fact, I liked it—I thought it was a great way to build the brand name, generate some goodwill, and do some good in the world. But here is the problem: it was my money used, and it was done without my consent. You very well could be a Dr. Pepper shareholder and be ticked off that Dr. Pepper is donating some of their profits to charity—that should be your decision to make because you are the owner, rather than that of the business management team which is supposed to be the stewards of your capital.

That is the problem with charitable giving in corporate America: management teams spend the money of the owners (without their expressed consent) on their own particular pet causes. Usually, most intelligent management teams stay away from the controversial charities, but nevertheless, it ignores the fact that is disrespectful to owners because the management teams spend your money on the causes that they support. It is one thing if Brian Moynihan writes a $10,000 check to the Girl Scouts with his own money. Good for him. But it is quite another when he uses the corporate treasury at Bank of America to do so; it allows him to generate goodwill and reputational advancements without making a sacrifice, and it spends the profits of owners on causes and charities that the owners themselves might not necessarily support.

The one person who took a stand against this soft corruption was Warren Buffett at Berkshire Hathaway. He decided that it was unfair that the corporate managers were making charitable decisions without the consent of owners, so he came up with a strategy to dodge this problem and act intelligently: each shareholder could choose to donate $18 for each share of Berkshire Hathaway that he/she owned, with the ability to divvy up the donation among three different charities.

It was a beautiful program that represented the high-water mark of capitalism. If you didn’t want your Berkshire Hathaway shares to donate to charity on your behalf, then you could opt of it, keeping the money within the corporate treasury to compound further. And if you wanted some of your money to go to charity, you got to exercise your right as the owner to pick the place where your money went. In this way, Buffett would exercise the will of the owners—I loved the autonomy of this, everyone got to do what they wanted charity-wise with the $18 per share allowance.

It was nice to see a place in the world where money was being used as a tool to make the world a better place, with the owners of the profits getting to define “make the world a better place” on their own terms.

But then, a woman named Cindy Coughlon (cue the “this is why we can’t have nice things” track) had to come and ruin it. Berkshire Hathaway had acquired a company called “The Pampered Chef”, a company which hires women (and some men) to peddle kitchenware on their behalf. This Coughlon lady got mad that she was freelancing for a company whose profits flowed to Berkshire Hathaway and then enabled some of the shareholders to make donations to Planned Parenthood.

Coughlon was on the pro-life side of the debate, and she strongly opposed Planned Parenthood because abortion-related activities constitute part of their overall services. So she started petitioning for Berkshire’s charitable program to come to an end, or at the very least, restrict potential donations to pro-choice groups.

Unfortunately, this caused Buffett to cave. Although Berkshire’s charitable program had drawn the ire of pro-life groups in the past, it was always directed at Berkshire itself, not one of the subsidiaries. Coughlon and a couple hundred other protestors were hassling and boycotting Pampered Chef, and Buffett cancelled the program in 2003 because he did not like the thought of Berkshire’s corporate policies causing harm to any of the private businesses that it held.

Even though I agreed with Coughlon’s views—personally, I would not be sending my $18 to pro-choice organization—I very rarely think that the solution to a problem is to ban it. Now, the charitable program is over, and Berkshire’s status as the one place where the owners got to control what happens with their own money has come to an end. The thing is, Coughlon didn’t “win”, even though the program ended. If I was a wealthy Berkshire shareholder with strong pro-choice views and I saw that a pro-life agitator brought the charitable program to an end, I would go out of my way to make excessive donations to Planned Parenthood, just to make a point. People don’t like it when you force them to do things with their money, and when you restrict their autonomy, you only make them want to spite you more.

It’s just a bad way to act. In some ways, the best way to behave would be for a corporation to have a policy of no charitable giving, and then allow its owners to take the dividends and donate to the charities of their own choosing. You can avoid these types of problems altogether. But still, it’s a shame that good things have to come to an end simply because of a squeaky wheel. For a brief moment in history, owners of Berkshire Hathaway had the complete freedom to pick the charities of their choice. Until some lady came along trying to restrict how other people spend their money, and had to ruin the good thing for everyone. If I ever owned a company that had publicly traded stock, I’d allow for 1% of annual profits to go to the charities of the owners choosing, consequences and protests be damned. It’s a bad habit to cater to the loudest complainer—a lot of nice perks and freedoms come to an end that way.

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